A cross trade is a transaction where only one exchange member is involved. A cross trade is therefore either a transaction between two customers having the same bank/broker or a transaction between a customer and his/her bank/broker.
Nikolaj Hessolholt Munck concludes that three structural factors explain the high level of cross trades in Copenhagen: The first factor is a larger member concentration in Denmark. The second is after-hours trading and transaction reports from reporting non-members, i.e. banks and brokers that are not members of the Copenhagen Stock Exchange. The third factor is that Danish banks/brokers have a long tradition of telephone trading and immediate transactions systems.
Cross trades abroad typically are order book trades. However, the majority of cross trades in Denmark are executed outside the trading system. Only cross trades in the Exchange’s trading system may break the time priority, which corresponds to 7 per cent of total trading in Danish shares. In other words, there is a maximum risk of 7 per cent of all trades breaking the time priority. The author points out that it is a mistaken belief that a cross trade is a transaction which breaks the time priority, i.e. “jumps the queue” in the Exchange’s trading system.
To read the article ‘Structural factors explain the high number of cross trades executed in Denmark’ in Focus no. 107 click here.
Questions to Nikolaj Hesselholt Munck may be sent to the email address: copenhagen@omxgroup.com until March 30, 2006.
